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On the 7 May 2018, European Banking Authority (EBA), published its intention to launch a quantitative and qualitative assessment of the new Basel III framework As a preliminary step, the EBA is planning to launch, by July, an overall data collection to which also smaller and less complex banks, as well as institutions with specific business models, will be invited to participate. The EBA should deliver the final analysis report to the Commission services by 30 June 2019.

 

This comprehensive analysis answers to the European Commission’s Call for Advice to the EBA for the purposes of revising the own fund requirements for credit, operational, market and credit valuation adjustment risk. In particular, the EBA is invited to assess the individual impact on institutions of introducing each of the key revisions in EU legislation :

 

• revisions to the standardised approach for credit risk (SA-CR);
• revisions to the internal ratings-based approaches (IRBAs) for credit risk;
• an overhaul of the credit valuation adjustment (CVA) framework;
• a new standardised approach for operational risk (SA-OR), which replaces all existing approaches for this risk; and
• the replacement of the “Basel II” floor3 with an aggregate output floor.

 

In particular, the European Commission is seeking analysis on both the impact in terms of changes to the own funds and eligible liabilities requirements of institutions but also in terms of the operational and administrative costs that would be incurred by institutions. The impacts requested in terms of changes to the institutions’ own funds and eligible liabilities requirements should at least be expressed in terms of changes to risk-weighted assets (RWAs), capital ratios, Tier 1 minimum required capital (MRC) as well as any resulting shortfalls in own funds/eligible liabilities, if applicable. In this context, the EBA should consider all own funds and buffer requirements (i.e. Pillar 1, Pillar 2 and combined buffer) as applicable under the CRR and Directive 2013/36/EU (the Capital Requirements Directive or CRD) as well as the (forthcoming) MREL/TLAC requirements. When assessing these impacts, the EBA should take into account institutions’ ability to retain profits and increase own funds/eligible liabilities during the implementation period.

 

Find out more here.